Payment delays to contractors on the M1 Road rehabilitation are now threatening the release of €58.4 million (about K115.7 billion) earmarked for the project’s second phase.
The development comes as some contractors told Weekend Nation this week they are considering suspending works or terminating contracts over unpaid interim payment certificates.
In a written response this week, European Investment Bank (EIB) media officer Harriet Ongaki said while discussions on the second phase are ongoing, the bank will only move to release the outstanding funds once conditions tied to the first phase are met.
“As stipulated in the contractual arrangements, it is the responsibility of the Government of Malawi to pay contractors. Additional funding will be discussed based on the implementation of the first phase of the works. The European Investment Bank remains in close contact with the government on these issues,” Ongaki said.
The €58.4 million comprises a €38 million EIB loan and a €20.4 million EU grant. It follows an earlier disbursement of a €95.5 million EIB loan and a €44 million EU grant under a €139 million financing agreement signed in November 2019 as part of the EU’s Global Gateway strategy.
The M1 is Malawi’s economic spine.
The 1 300km road runs from Karonga to Nsanje, linking all major cities and over 20 districts. It carries an estimated 70 percent of domestic freight and passenger traffic.
It moves maize from the Central Region surpluses to the food-deficit south, distributes fertiliser under government farm input subsidy programmes and channels fuel imports and exports of tobacco, tea and legumes through Beira and Dar es Salaam.
For government and donors, the 301km rehabilitation from Kamuzu International Airport Junction to Chiweta is, therefore, not just road works. It is about pressing the cost of living down, keeping food moving, and maintaining trade competitive.
But on the ground, works are slowing because of cash flow problems.
For example, documents seen by Weekend Nation show China Henan International Company Limited, working on the 66.5km Lot 4 from Kacheche to Chiweta in Rumphi, is owed about €2 million [K3.96 billion], excluding interest, in unpaid interim payment certificates.
Last month, consulting engineers RSK Group warned Minister of Transport and Public Works Jappie Mhango during an inspection of Lots 1 and 2 that persistent funding shortfalls could force postponement or cancellation of planned works on some sections.
RSK team leader Paul Rushton said the project was nearing the limit of its original financing package, with about €130 million of the initial €134 million already certified.
The other lots are: China Jiangxi International (102km Lot 1 from KIA Junction to Kasungu Boma); Mota-Engil (85.5km Lot 2, Kasungu Boma to Jenda, Mzimba) and Unik Construction Engineering (46.5km Lot 3, Jenda to Mzimba Boma Junction).
A well-placed sourced involved in the M1 projects implementation said early this week: “As far as I know, Lot 3 has already been halted, Lot 2 has seen very limited work done, and LOT1 is also scheduled to be suspended. These contractors have lost faith in the Malawian government.”
Engineers and economists warn that if payment delays persist, there will be higher costs for consumers as poor road sections force trucks to slow down or detour which would push freight costs up, with the burden passed to consumers.
Food security pressure will be piling. With the lean season approaching and, any slowdown in moving maize from the Centre to the South risks tighter supply and higher prices, and lastly there is risk to donor financing given that the EIB has tied the €58.4 million second phase to performance on phase one. Prolonged arrears to contractors could be read as implementation weakness and delay or reduce the release.
“The M1 is not just asphalt. It is our supply chain. When works stall, transport, agriculture and business all pay the price,” said a senior transport economist working in the public sector who asked not to be named due to the sensitivity of the matter.
Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha on Monday said project funds are managed through the Project Implementation Unit under the Ministry of Transport and Public Works.
Since Monday, Ministry of Transport and Public Works spokesperson Chikondi Chimala and Roads Fund Administration spokesperson Masauko Ngwaluko had promised responses, but had not commented by press time. Mhango also referred inquiries to ministry officials.
